By Stephen Fidler and Greg Ip
DAVOS, Switzerland -- European politicians said they are
prepared to defend themselves and would retaliate against any
American tariffs, after President Trump set his sights on the
continent as the next front in his global fight over trade.
With a first-phase China deal in his pocket, Mr. Trump said he
wants to reach an agreement with the European Union before the U.S.
presidential election, and threatened to levy tariffs if talks
failed.
"They're going to make a deal, because they have to. They have
to," Mr. Trump said in a television interview on the sidelines of
the World Economic Forum here. "They have no choice."
France's finance minister, Bruno Le Maire, who was also making
the rounds at Davos, quickly shot back. "If we were to be hit by
American tariffs, we would have no choice but to retaliate," he
told The Wall Street Journal.
Mr. Le Maire said the EU had already shown itself prepared to
retaliate when the U.S. imposed tariffs on European steel. "A trade
war between U.S. and Europe would be a full political and economic
failure," he said.
In many ways, Europe is less vulnerable to U.S. levies than
China. The U.S. exports three times more to the EU than it does to
China, giving Europe plenty of targets for retaliation.
In the U.S., Europe's trade policies aren't viewed as negatively
as China's. And Western Europe, unlike China, is a strategic ally
of the U.S. That could leave Mr. Trump with less domestic backing
for a trans-Atlantic trade war -- if it came to that -- than he had
when he took on China.
A protracted dispute could inflict pain on both sides. European
economic growth is stagnating, making it more vulnerable to
tariffs. European levies on U.S. goods could cause political
trouble for Mr. Trump during his campaign.
Markets, repeatedly roiled by developments in the trade war with
China, now face the risk of a repeat.
"This is probably the biggest trade-related risk for 2020," Andy
Laperriere, a policy analyst at Cornerstone Macro, wrote on
Wednesday.
Mr. Trump also turned his attention to another bugbear: The
World Trade Organization, which he says operates in ways that
disadvantage the U.S.
After a meeting with WTO Director-General Roberto Azevêdo, Mr.
Trump said he had discussed the need for dramatic reforms to the
rules of global trade. The U.S. has already effectively blocked the
WTO's enforcement mechanisms.
Mr. Azevêdo, who is to visit Washington in coming weeks, told
reporters that the body needed to be revamped. But it isn't clear
that the two men have the same thing in mind.
On Europe, Mr. Trump has repeatedly criticized the big trade
surpluses that the EU runs with the U.S. Census figures show a U.S.
trade deficit for goods of $162.6 billion with the EU in 2019.
Mr. Trump said he had a great talk with Ursula von der Leyen,
the new president of the European Commission, while in Davos. "But
I said, 'look, if we don't get something, I'm going to have to take
action, and the action will be a very high tariff on their cars and
other things that come into our country,'" he told CNBC.
Mrs. Von der Leyen, who is also set to visit Washington in
coming weeks, said after meeting Mr. Trump: "I am convinced that we
can engage in a positive U.S.-EU agenda in trade, as well as on
technology, energy and much more besides."
Mr. Le Maire, the French minister, said in the Journal interview
that Europe was much more willing to deal with challenges
strategically than in the past.
"In one or two years, Europe has changed. It isn't as naive as
it used to be.... Europe is becoming more independent and more
aware of its strategic interests and economic interests," he
said.
He said it would be better for the U.S. and Europe to work
together to deal with unfair Chinese trade practices in areas
relating to intellectual property, market access and state aid.
Mr. Trump has repeatedly demonstrated that tariffs even against
traditional allies represent a weapon of choice. This week, the
French government -- facing U.S. tariffs on wine and other exports
to the U.S.--said it would delay collection of a tax on digital
companies until the end of the year, pending an international
agreement on the issue.
Securing a trade deal with the EU in an election year would be a
huge challenge for Mr. Trump, and a decision to levy new tariffs
would be a risk. In 2003, after the administration of George W.
Bush levied tariffs on European steel, the Europeans responded with
threats of tariffs on orange juice -- targeted at the electoral
swing state of Florida. President Bush reversed the tariffs.
Still, it isn't a battle that the EU would choose to fight with
its export-oriented manufacturing sector -- and in particular its
important automobile industry. The industry is already facing big
challenges from changing consumer habits, including a growing
aversion to diesel cars and a shift in markets like China toward
electric vehicles.
The region's growth is tentative. On Monday, the International
Monetary Fund cut its 2020 forecast for the eurozone by 0.1
percentage point to 1.3%. It grew 1.2% in 2019.
Write to Stephen Fidler at stephen.fidler@wsj.com and Greg Ip at
greg.ip@wsj.com
(END) Dow Jones Newswires
January 22, 2020 15:44 ET (20:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.